Broadcom (AVGO.O) announced its fiscal third-quarter earnings for 2026, which ended in July, after the US market closed on September 3, 2026, Beijing time:
The AI business is the most core part of the semiconductor business. Broadcom's (AVGO.O) AI business revenue this quarter was $16.7 billion, up $5.9 billion quarter-over-quarter, beating market expectations of $16 billion, with growth mainly driven by large-scale shipments of TPUv7 to Google and Anthropic.
Google and other major companies have recently raised their 2026 capital expenditure outlook, and deliveries from Anthropic are expected to accelerate from the second half of the year. The company expects AI business revenue to reach $21.7 billion in the next quarter, a sequential increase of $5 billion.
Broadcom's guidance indicates expected revenue of approximately $3.48 billion for the fourth quarter of fiscal year 2026, lower than market expectations of $3.55 billion. The company expects a non-GAAP operating margin of 66% for the fourth quarter of fiscal year 2026.
As the company provided annual guidance on AI revenue, the importance of quarterly guidance has relatively "weakened". The company's management provided AI revenue expectations for fiscal years 2026-2028 of $58 billion (previously $56 billion), $115 billion (previously $100 billion), and $230 billion.
For the 2027 fiscal year, the company still maintains a target of 10GW, with market expectations for revenue from this 10GW ranging from 130-150 billion, and the company's guidance remains "cautious". As for the 2028 fiscal year, the guidance of 230 billion is not bad, but since 10GW of the expected 20GW comes from Anthropic, the market views this part of the outlook with skepticism, especially given the recent slowdown in Anthropic's ARR growth rate.
Operating metrics: Revenue for the quarter reached $29.6 billion, representing an 86% year-over-year increase, in line with market expectations of $29.5 billion. The sequential increase of $7.4 billion was primarily driven by growth in AI business.
The company's gross margin for the quarter was 69%, and after excluding the impact of acquisition amortization and restructuring costs, the adjusted gross margin for the quarter was 74%, down 2 percentage points from the previous quarter. The overall gross margin declined structurally due to the increased proportion of lower-margin ASIC business.
Broadcom Inc.'s AVGO business can be divided into two parts: semiconductor and infrastructure software.
Semiconductor revenue reached $20.8 billion in the quarter, up $5.8 billion sequentially, with AI contributing the bulk of the increase. Excluding AI, non-AI revenue was $4.2 billion, up 5% year over year, as growth in broadband and server storage was offset by a decline in wireless.
Infrastructure software achieved $8.75 billion this quarter, representing a 29% year-over-year increase, driven by VMware Private AI Cloud and VCF workload repatriation, as well as the incremental growth brought by enterprise-side AI.
Previous growth was primarily driven by the integration of VMware acquisitions and adjustments to the company's pricing model, which involved a full transition from a perpetual licensing model to a subscription-based model. The impact of acquisitions has come to an end, and future growth in the software business will primarily focus on the organic growth of VMware's subscription model.
On the cost side, core operating expenses (R&D expenses + sales and management expenses) were $3.9 billion this quarter, remaining stable. Due to the impact of high revenue growth, the core operating expense ratio decreased to around 13%.
Over the past two years, the company has significantly increased stock-based compensation and related expenses, which now account for nearly half of total compensation costs. Excluding the impact of stock-based compensation, core operating expenses for the quarter came to $2.1 billion, down $80 million quarter over quarter.
Doubao's Overall View: Long-Term Guidance Has Flaws, Facing Intense Competition
Broadcom AVGO's quarterly revenue and gross margin have basically met market expectations. The growth in revenue is mainly attributed to the contribution of its AI business. In terms of gross margin, after excluding the impact of acquisition amortization and restructuring costs, the actual operating gross margin for the quarter was 74%, down 2 percentage points from the previous quarter. From a medium- to long-term perspective, the overall gross margin still faces downward pressure due to the increasing proportion of lower-margin ASIC business.
The market is most concerned about the company's AI business performance: this quarter the company achieved $16.7 billion in AI revenue, a quarter-over-quarter increase of $5.9 billion. The company predicts that next quarter's AI revenue will reach $21.7 billion, a quarter-over-quarter increase of $5 billion, slightly better than market expectations of $21.5 billion.
Broadcom experienced a relatively deep correction earlier, mainly due to concerns over the company's competitive risks beyond industry-wide beta factors. Currently, Google remains one of the company's major clients, but Google has initiated a "backup plan" for its supply chain: ① Google has confirmed that it will split its next-generation TPUv8 series into two versions and introduce MediaTek (MTK) into its supply chain; ② Google has accepted warrants from Marvell and signed a customized chip agreement with the company.
The company revised its shipment target for fiscal year 2027 to 10GW after the last earnings report, but maintained its revenue outlook of over $100 billion. Regardless of whether the revenue per GW is $15 billion or $20 billion, 10GW clearly exceeds $100 billion, yet management still failed to explicitly raise the guidance, which the market may interpret as "lacking confidence," and led to a 12% single-day decline after the previous quarter's earnings report.
Nvidia recently clarified that it expects revenue growth of over 70% for its 2028 fiscal year, corresponding to the 2027 calendar year. Facing competitive threats from MTK and Marvell, the market has higher expectations for Broadcom's management to raise its AI guidance for the 2027 fiscal year, which corresponds to the 2027 calendar year.
During the post-earnings call, management raised its AI guidance for the current fiscal year and next fiscal year (FY2027) to $58 billion (from $56 billion) and over $115 billion (from $100 billion), respectively, and provided an FY2028 outlook of $230 billion, corresponding to 20GW.
As mainstream institutions have basically set the company's AI revenue expectations for fiscal year 2027 at around 1300-1500 billion, the fiscal year 2027 estimate of 1150 billion will still be interpreted as "lacking confidence" or "withholding performance".
The company's guidance for 2028 fiscal year of 20GW, approximately $230 billion, is a decent indicator. However, 10GW of this comes from Anthropic, which has less financial strength compared to large CSPs. Due to the recent slowdown in Anthropic's ARR growth rate, the market is also likely to discount this expectation.
Outside of its earnings report, the market is mainly focused on the following developments at Broadcom AVGO:
Client and capital expenditures: Broadcom AVGO secured six custom XPU clients (unchanged), including Google TPU, Meta MTIA, Anthropic, Open AI, and two undisclosed clients. Google and Meta were previously the company's main customers for custom ASIC chips, while Anthropic and Open AI began contributing revenue in the second half of the year.
In line with market expectations, the company's disclosure of approximately 10GW for fiscal year 2027 can be roughly broken down into Google (3-4GW), Anthropic (5GW), Open AI (1-2GW), and Meta (1-2GW).
Looking at these major clients, Google and Meta have once again raised their full-year capital expenditure forecasts after their earnings reports, and the demand for this part is relatively certain. As for Anthropic and Open AI, the market is currently focusing on the slope of their annual recurring revenue (ARR), and the recent slowing down of Anthropic's ARR slope will increase the uncertainty of subsequent demand.
B) AI chip market competition: Nvidia retains an absolute lead in the AI chip market, with Broadcom (AVGO) playing the role of challenger/competitor. However, a "fire in the backyard" scenario is now emerging.
Marvell's recently announced partnership with Google defines qualifying revenue as revenue from Google's custom ASIC chips, including AI inference accelerators, storage controllers, network interface controllers, memory interface controllers, and near-memory computing. The collaboration clearly targets the same territory as Broadcom's custom ASIC business with Google, such as its TPUs.
c) Financing platform: Broadcom is partnering with Apollo and Blackstone's credit and insurance businesses to establish the AI XPV Platform, targeting support for over 20GW of compute capacity by 2028. The platform will leverage Broadcom's XPU and networking solutions, customized for frontier labs—explicitly naming Anthropic and OpenAI. The initial $35 billion tranche, led by Apollo, will fund deployment of Anthropic's 1GW+ capacity at Fluidstack sites.
In practice, Apollo and Blackstone provide the capital to buy Broadcom chips, which are then delivered to frontier labs that can't pay in cash. The revenue is real on Broadcom's books, but whether it ultimately gets paid depends on Anthropic's and OpenAI's commercial success—their ARR performance.
Initially, the market viewed Broadcom as a competitor to Nvidia, with relatively high valuation expectations for the company. Now, however, Broadcom itself faces competition from MTK and Marvell, becoming the "competitor being competed against", with its valuation also plummeting.
The market's concerns about Broadcom AVGO are mainly twofold. On one hand, intensifying competition may threaten the company's supply share with major customer Google. On the other hand, the company's outlook for major customers, including cutting-edge labs such as Anthropic and Open AI, may lead to increased uncertainty in revenue forecasts if the corresponding annual recurring revenue (ARR) growth slows, potentially falling into the "cycle financing trap".
Overall, the company's results largely met market expectations. Compared with earnings, the market is paying more attention to the outlook for its AI business. The company raised its FY2027 AI business guidance and provided expectations for FY2028, but this guidance still has flaws. The 115 billion figure for FY2027 remains below market expectations, and most of the incremental growth in the 20GW for FY2028 is concentrated in Anthropic and OpenAI.
Unlike Nvidia's general-purpose GPUs, Broadcom's customized ASIC chips have a more singular collateral purpose, which also increases "tail risk". If Anthropic or Open AI's annual recurring revenue (ARR) slows down, it may not only lead to direct order cuts but also impact a large number of subsequent cooperation plans.
The upward revision of AI guidance is positive news, but it is still difficult to give the market enough confidence, as the market largely views Anthropic's orders as "uncertain". Until the company can alleviate market concerns, its valuation will likely remain suppressed at a relatively low level.